2018 Annual Report H Share Stock Code : 03968 Preference Share Stock Code : 04614 We are here Just for you Z CV China Merchants Bank Contents 1 Annual Report 2018 Contents 2 Important Notice 3 Definitions 3 Significant Risk Warning 4 Chairman’s Statement 7 President’s Statement 12 I Company Information 16 II Summary of Accounting Data and Financial Indicators 19 III Report of the Board of Directors 19 3.1 Analysis of Overall Operation 19 3.2 Analysis of Income Statement 26 3.3 Analysis of Balance Sheet 30 3.4 Analysis of Loan Quality 37 3.5 Analysis of Capital Adequacy Ratio 40 3.6 Results of Operating Segments 41 3.7 Other Financial Disclosures under the Regulatory Requirements 41 3.8 Implementation of Business Development Strategies 43 3.9 Changes in External Environment and Corresponding Measures 50 3.10 Business Operation 66 3.11 Risk Management 72 3.12 Profit Appropriation 74 3.13 Requirements of the Environmental, Social and Governance Reporting Guide 74 3.14 Compliance with Relevant Laws and Regulations 74 3.15 Management Contracts 74 3.16 Permitted Indemnity Provision 75 IV Important Events 83 V Changes in Shares and Information on Shareholders 95 VI Directors, Supervisors, Senior Management, Employees and Organisational Structure 110 VII Corporate Governance 128 VIII Report of the Board of Supervisors 129 IX Financial Statements 2 China Merchants Bank Important Notice Annual Report 2018 Important Notice 1. The Board of Directors, the Board of Supervisors, Directors, Supervisors and senior management of the Company confirm that the contents in this annual report are true, accurate, and complete and have no false representations, misleading statements or material omissions, and they will individually and collectively accept legal responsibility for such contents. 2. The 40th meeting of the Tenth Session of the Board of Directors of the Company was held at its Shekou Training Center on 22 March 2019.The meeting was presided by Li Jianhong, Chairman of the Board of Directors. 16 out of 16 eligible Directors attended the meeting in person. 8 Supervisors of the Company were present at the meeting. The convening of the meeting complied with the relevant provisions of the “Company Law of the People’s Republic of China” and the “Articles of Association of China Merchants Bank Co., Ltd.”. 3. Deloitte Touche Tohmatsu Certified Public Accountants LLP and Deloitte Touche Tohmatsu (both being auditors of the Company) have separately reviewed the 2018 annual financial report prepared in accordance with the PRC Generally Accepted Accounting Principles and International Accounting Standards, and issued standard auditing reports with unqualified opinions. 4. Unless otherwise stated, all monetary sums stated in this annual report are expressed in RMB. 5. Li Jianhong, Chairman of the Company, Tian Huiyu, President and Chief Executive Officer, Li Hao, First Executive Vice President and Chief Financial Officer, and Li Li, the person in charge of the Finance and Accounting Department, hereby make representations in respect of the truthfulness, accuracy and completeness of the financial statements in this annual report. 6. Proposal of profit appropriation: it was proposed that 10% of the audited net profit of the Company for 2018 of RMB75.232 billion, equivalent to RMB7.523 billion, will be allocated to the statutory surplus reserve, while 1.5% of the total amount of the risk assets, equivalent to RMB6.028 billion, will be appropriated to the general reserve. Based on the total share capital of A Shares and H Shares on the record date for implementation of the profit appropriation, the Company will declare a cash dividend of RMB0.94 (tax included) for every share to all shareholders of the Company whose names appear on the register, payable in Renminbi for holders of A Shares and in Hong Kong Dollars for holders of H Shares. The actual profit appropriations amount in HKD would be calculated based on the average benchmark rate for RMB to HKD published by the People’s Bank of China for the previous week (including the day of the general meeting) before the date of the general meeting. The retained profits will be carried forward to the next year. In 2018, the Company did not transfer any capital reserve into share capital. The above proposal of profit appropriation is subject to consideration and approval at the 2018 Annual General Meeting of the Company. 7. We have included in this report certain forward-looking statements with respect to the financial position, operating results and business development of the Group. We use words such as “will”, “may”, “expect”, “try”, “strive”, “plan”, “anticipate”, “aim at”, and similar expressions to indicate forward-looking statements. These statements are based on current plans, estimates and projections. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we give no assurance that these expectations will turn into reality or prove to be correct. Therefore they should not be deemed as the Group’s commitments. Investors should not place undue reliance on such statements and should pay attention to investment risks. You are cautioned that such forward-looking statements are related to future events or future financial position, business, or other performances of the Group, and are subject to a number of uncertainties which may cause substantial differences from those in the actual results. China Merchants Bank Definitions / Significant Risk Warning 3 Annual Report 2018 Definitions The Company, the Bank, CMB or China Merchants Bank: CMB International Capital or CMBIC: China Merchants Bank Co., Ltd. CMB International Capital Holdings Corporation Limited The Group: China Merchants Fund or CMFM: China Merchants Bank Co., Ltd. and its subsidiaries China Merchants Fund Management Co., Ltd. CBIRC: CIGNA & CMB Life Insurance: China Banking and Insurance Regulatory Commission CIGNA & CMB Life Insurance Co., Ltd. CSRC: CM Securities: China Securities Regulatory Commission China Merchants Securities Co., Ltd. Hong Kong Stock Exchange or SEHK: Deloitte Touche Tohmatsu Certified Public The Stock Exchange of Hong Kong Limited Accountants LLP: Deloitte Touche Tohmatsu Certified Public Accountants LLP Hong Kong Listing Rules: (Special General Partnership) The Rules Governing the Listing of Securities on the SEHK SFO: CMB Wing Lung Bank: Securities and Futures Ordinance CMB Wing Lung Bank Limited (Chapter 571 of the Laws of Hong Kong) CMB Wing Lung Group: Model Code: CMB Wing Lung Bank and its subsidiaries Model Code for Securities Transactions by Directors of CMB Financial Leasing or CMBFL: Listed Issuers of Hong Kong Stock Exchange CMB Financial Leasing Co., Ltd. Significant Risk Warning The Company has disclosed herein the major risks involved in its operations and the proposed risk management measures. Please refer to Chapter III for the details in relation to risk management. 4 China Merchants Bank Chairman’s Statement Annual Report 2018 Chairman’s Statement The year 2018 marked the 40th anniversary of China’s reform and opening up. CMB was a brainchild of the reform and opening-up policy and has emerged strong in the historical development trend. Amid the changes and challenges in the internal and external business environment, CMB has maintained its strategic resolve, laid solid foundation and achieved outstanding results with its excellent business performance in regaining its past glory. Both the customer base and profits reached a new level. As at the end of 2018, the number of retail customers of CMB reached 125 million. The total number of monthly active users (MAU) of CMB APP and CMB Life APP exceeded 81 million and the number of corporate customers exceeded 1.8 million. With the expansion of customer base, CMB continued to build a customer service ecosystem, enhanced customer experience, and realised “double-digit growth” in net operating income and net profit, with net profit exceeding RMB80 billion. The average return on equity (ROAE) attributable to ordinary shareholders of the Bank continued to increase, while assets and liabilities maintained a steady growth. At the same time, CMB actively optimised the customer structure and asset structure, strengthened risk management, and continued to realise the decrease in both non-performing loan ratio and balance of non-performing loans. The innovation-driven development strategy was further promoted. In 2018, the Board of Directors decided to increase the allocation to our new Financial Technology Innovation Project Fund from “1% of the pre-tax profit of the previous year” to “1% of the operating income of the previous year”, and enhanced the efforts in promoting the strategic plan for “building the best commercial bank in China with innovation-driven development, leading retail banking and distinguished features”. Adhering to the mindset of “error tolerance and win-win”, CMB promoted business agility by means of technology agility and quickened its pace of innovation. CMB established a technology-empowered Fintech innovation incubation platform, put in place an independent teamwork operation system and supported various innovation projects. It also drove forward staff composition change, and increased the talent bench in technology and data science, thereby making various breakthroughs in infrastructure and capacity building of Fintech such as artificial intelligence, big data, blockchain and cloud computing. The atmosphere of innovation in CMB became more zealous; the efficiency of innovation continued to increase; the layout of scenarios and ecology was further enriched; the perception of the technological innovation frontier became more acute. We actively fulfilled social responsibilities and created values for various sectors of the society. In 2018, PB ratio of A Shares and H Shares of CMB continued to rank first among the major listed banks in mainland China, and continued to create value for shareholders and investors through steady growth in profits and dividends. At the same time, CMB fully supported people’s needs for a better life and actively supported the national strategic emerging industries and the real economy.